D - Microeconomics

• Flagship Entry in Online Marketplaces

  Staff Working Paper 2023-41 Ginger Zhe Jin, Zhentong Lu, Xiaolu Zhou, Lu Fang

  In this paper, we empirically study how flagship entry in an online marketplace affects consumers, the platform, and various sellers on the platform. We find flagship entry may benefit consumers by expanding the choice set, by intensifying price competition within the entry brand, and by improving consumer perception for parts of the platform.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Market structure and pricing JEL Code(s): D, D4, L, L1, L8

• The contribution of firm profits to the recent rise in inflation

  Staff Analytical Note 2023-12 Panagiotis Bouras, Christian Bustamante, Xing Guo, Jacob Short

  We measure the contribution to inflation from the growth in markups of Canadian firms. The dynamics of inflation and markups suggest that changes in markups could account for less than one-tenth of inflation in 2021. Further, they suggest that peak inflation was driven primarily by changes in the costs of firms.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Firm dynamics, Inflation and prices, Market structure and pricing JEL Code(s): D, D2, D22, D4, E, E3, E31, L, L1, L11

• Do hedge funds support liquidity in the Government of Canada bond market?

  Staff Analytical Note 2023-11 Jabir Sandhu, Rishi Vala

  While Government of Canada bond transactions of hedge funds are typically in the opposite direction to those of other market participants, during the peak period of market turmoil in March 2020, hedge funds sold these bonds, just as other market participants did. This shows that hedge funds can at times contribute to one-sided markets and amplify declines in market liquidity.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Coronavirus disease (COVID-19), Financial markets, Financial stability, Market structure and pricing JEL Code(s): D, D4, D47, D5, D53, G, G1, G12, G14, G2, G23

• Estimating the Slope of the Demand Function at Auctions for Government of Canada Bonds

  Staff Discussion Paper 2023-12 Bo Young Chang

  We use bid data from Government of Canada bond auctions between 1999 and 2021 to gauge the yield sensitivity of these bonds to the issuance amount. Our new metric estimates the demand function of the bidders at each auction and offers insights into the relationship between supply and yield of government bonds.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Debt management, Interest rates JEL Code(s): D, D4, D44, G, G1, G12

• Why Consumers Disagree About Future Inflation

  Staff Discussion Paper 2023-11 Naveen Rai, Patrick Sabourin

  Since 2022, consumer inflation expectations have shifted, with a significant increase in those expecting high inflation in the coming year and a surge in those expecting deflation further in the future. Using data from the Canadian Survey of Consumer Expectations, this paper seeks to assess the factors that influence people to expect high inflation, moderate inflation or deflation.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Inflation and prices JEL Code(s): C, C8, C83, D, D8, D84, E, E3, E31

• Markups and inflation during the COVID-19 pandemic

  Staff Analytical Note 2023-8 Olga Bilyk, Timothy Grieder, Mikael Khan

  We find that prices and costs for consumer-oriented firms moved roughly one-for-one during the COVID-19 pandemic. This means firms fully passed rising costs through to the prices they charged. However, our results are suggestive, given data limitations and the uncertainty associated with estimating markups.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Firm dynamics, Inflation and prices JEL Code(s): D, D2, D4, E, E2, E3, L, L1

• SME Failures Under Large Liquidity Shocks: An Application to the COVID-19 Crisis

  Staff Working Paper 2023-32 Pierre-Olivier Gourinchas, Şebnem Kalemli-Özcan, Veronika Penciakova, Nicholas Sander

  We study the effects of financial frictions on firm exit when firms face large liquidity shocks. We develop a simple model of firm cost-minimization that introduces a financial friction that limits firms’ borrowing capacity to smooth temporary shocks to liquidity.

  Content Type(s): Staff research, Staff working papers Topic(s): Coronavirus disease (COVID-19), Firm dynamics, International topics JEL Code(s): D, D2, D21, D22, E, E6, E65, H, H8, H81

• Reviewing Canada’s Monetary Policy Implementation System: Does the Evolving Environment Support Maintaining a Floor System?

  Staff Discussion Paper 2023-10 Toni Gravelle, Ron Morrow, Jonathan Witmer

  At the onset of the pandemic, the Bank of Canada transitioned its framework for monetary policy implementation from a corridor system to a floor system, which it has since decided to maintain. We provide a comprehensive analysis of both frameworks and assess their relative merits based on five key criteria that define a sound framework.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Market structure and pricing, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): D, D4, D47, E, E4, E42, E5, E58

• Pricing Indefinitely Lived Assets: Experimental Evidence

  Staff Working Paper 2023-25 John Duffy, Janet Hua Jiang, Huan Xie

  We study the trading of an asset with bankruptcy risk. The traded price of the asset is, on average, 40% of the expected total dividend payments. We investigate which economic models can explain the low traded price.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets JEL Code(s): C, C9, C91, C92, D, D8, D81, G, G1, G12

• Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media

  Staff Working Paper 2023-23 Alistair Macaulay, Wenting Song

  News media present competing interpretations of what breaking news implies for the macroeconomy. Recent examples include news reporting on high inflation and yield curve inversions. Do these narratives shape macroeconomic sentiment? In this paper, we highlight the importance of narratives using evidence linking traditional media and social media.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Inflation and prices, Monetary policy JEL Code(s): D, D8, D84, E, E3, E32, E4, E43, E44, E5, G, G1